purpose this tech have these discussions. >> would it be fair to say that the white house is not -- >> a portion of today's white house briefing with press secretary jay carney taking several questions on campaign contributions and the health care law. you can see the entire briefing on line at any time at c-span.org. >> tonight on c-span2, fed chairman ben bernanke discusses the economy. then the u.s. court of appeals argument about california's proposition eight on same-sex marriage and german chancellor angle michael talks about the future of europe's.

in this testimony on capitol hill today federal ridge arab -- federal reserve chairman ben bernanke perris senators to resolve differences. his comments were part of a broader discussion about the u.s. economy. the senate budget committee hearing is just over two hours. >> good morning. senator conrad is in bed with the flu. he has asked me to chair today for the first part of the hearing. some intersessions don't think you as a ranking member, and we want to welcome the federal reserve chairman ben bernanke

back to this committee. this is the fourth time the you have testified before the committee, and we are very pleased to have you again. this is timely because of the nature of the recovery. i well, without objection in serve the full remarks of senator conrad's opening statement. i am going to turn to the ranking member for his statement before mine. senators sessions. >> of right. things you, dr. chairman. i hope chairman konrad feels better. the value. good morning. i think you for doing yesterday. i am eager to hear your thoughts about our financial situation. the congressional budget office new outlook confirms that our

deficit will top $1 trillion for the fourth consecutive year. we have never seen anything like that. in just three years we have accumulated almost $5 trillion in gross debt during which time the total number of americans actually working has decreased. actual working americans is down . administrations, the deficit that we face in the out years, the next decade, even more relentless and systemic. federal spending in real dollars have increased to 80% in 10 years while real wages for the average american have declined 7%. the government is getting bigger in the middle class is getting smaller. the problem that i have, the concern i am wrestling with is

that even our financial experts are often very wrong as to the danger facing the american people and our economy. yet, washington and wall street tell us they should delay reforms and not take action now. only some vague date in the future. for example, the secretary of the treasury comments at the federal reserve meetings in 2006 seems to me to indicate that we cannot always be sure that those in position of see the problem clearly. we don't see troubling signs of collateral damage in are not expecting much. two months later he was announcing that the fundamentals

of the expansion going forward still look good. janet yellen, president of the san francisco reserve bank was even more enthusiastic when the chairman left. it is fitting for the chairman to leave office with the economy in such solid shade. the situation to your successor is a lot like a tennis racket with a gigantic sweet spot. so i also recall in 2001 then chairman greenspan testified before this committee that we were looking at more than a decade of surpluses, and he wrestled the question of will to do. will to do with the surplus still coming into the treasury

there were wrong. you were wrong during some of these. common sense tells us, at least tells me that more borrowing and more debt will make us weaker, not stronger. the last financial crisis proved that the future is hard to predict, but while we cannot predicted date the debt crisis would erupt or what i known event might set it off, we do know that we are on a collision course with reality. the longer we wait to chase said scores to develop a plan for a sensible financial future, the grid for the danger becomes. yet, our majority leader has closed the bridge and marked the wheel and as the democratic senate will decline to offer a budget resolution for the third straight year. not once has it occurred since congressional budget act was passed in 1974. so i am glad that the chairman

has indicated he will mark of a budget in committee. tomorrow will be a damned exercise with the majority leader decrees that the budget process will be shut down. effectively declared a senate democrat budget and that dead on arrival. >> to me, if we don't have a different approach than the majority party is willing in the fundamental requirement of leaders and basically. a good budget is important.

i find it beyond imagining that the president this critical time in our nation's economic life a serious budget plan for a future that would get us off this unsustainable debt path, past the decline. he did not even mention this in his pursuit of the union address. the chairman of the joint chief admiral mullen. the president's lack of, real change will not occur without the of the president. not only not lead to tax those by brilliant congressman paul ryan i'm not optimistic, so we

are difficult. we face a number of difficult problems. i am hopeful that the president's budget will do the budget should do. last year's budget, did not do that. i hope he will this year. i'm not confident. thank you for letting me share those remarks. we value your opinion, and you can help us work our way through the most dangerous systemic debt challenge of lead the nation deserve face. >> about the budget.

>> i said i would lay out a plan , unsustainable the president's budget that is going to come out it's going to reflect the overall optimism that is driving -- driving in the country appeared to the economy. all summed up in this chart. this is private sector jobs. you can see for about a year and a half there were massive job losses in the private sector and each of the months. this only starts in january and nine. you can take it back even further, and that is when the crisis started in the fall of

08. and this tells us long about march of 2010 the jobs picture dramatically changed. there is the trend line. to the point at which 257,000 in this past month on jump increases. that's coming to me, shows a trend that is, i think, reflecting the optimism that a study to bubble across america. mr. chairman bernanke, your job has been very tough of the last few years with the consumer confidence that has been shaken. the events in japan and europe threatening to derail our economy. and, of course, the partisan

bickering that we have seen on the national stage and even on states stages from time to time. and i truly believe that when the history of this is written that you, sir, are going to be remembered as a critical figure because your role has been so prominent in helping avert the complete collapse of our financial system, and for that we are enormously grateful. we continued to have major fiscal challenges facing the country, long-term budget crisis brought on prime merrily from the rising cost of health care and outdated tax systems and years of political experience. and near term economic challenge

of a slow recovery as the chart indicates. that 2008 financial crisis, which if it had not been for, by the way, the bipartisan cooperation, after september of 2008 when we nearly went into a financial death spiral and the cooperation of an outgoing republican administration with the incoming democratic administration, the two of them working together to reverse that death spiral. now, cbo's report last week shed new law -- new light on the long term budget challenge. under their estimates if we continue on our current path without letting current law come into effect gross federal debt

is expected to reach 103% of gdp this year and will then rise to 120% of gdp by 2020 to. as for the economy, it is clear we have, long way from the death of 08 endo nine and the recovery has recently shown the signs of the upward trend of strengthening. but it is a long and difficult route back. this is a frustratingly slow pace of the recovery. economists have testified here that they found the recession is caused by or accompanied by a severe financial crisis, like we have had and in particular crisis is steeped in the housing sector, which is ours, tend to

last longer and require a greater amount of recovery effort untypical recessions. and so i think not only that this chart has shown the positive signs that we're seeing , we are also seeing the unemployment rate coming down. we have seen ten consecutive quarters of real gdp growth, consumer confidence showing signs of improvement. u.s. auto manufacturers are turning to some profitability and state revenues are showing signs of improvement. amazing to me how i2-minute commercial during the civil can generate such political controversy when it is, in fact, celebrating the fact of the recovery of detroit and the auto

manufacturers. so, in all of these good signs we can become complacent. there are serious risks. severally unemployment remains too high. housing continues to pose a threat, and time after time on things that have been tried they have only been partially successful at best. too many homes are still in foreclosure or underwater. obviously the political deadlock that we have here that many of us on the status of tried to break by coming together in a bipartisan approach in what a lot of us urge the super committee to do. by the way, senator sessions, there was a budget act, and that was in the budget control act.

that set the course for ten years of caps and had a discipline process, which was the super committee, which we desperately goldwork, but the deadlock was sort of -- there. there is an imbalance of budget cuts that could be a dragon is economy. and then, of course, the situation in the middle east could result in a disruption of oil supplies. the european debt and fiscal crisis. and all of these elements of uncertain elements that could disrupt the recovery. two of the most important steps that we could take to shore up the recovery would be to extend the payroll tax cut and the emergency unemployment benefits for the remainder of this year. then in the process seriously

move to redo the tax code and to reform this bloated tax cut. and we should also reconsider efforts to rebuild the country's infrastructure. and so, mr. chairman, and looking forward, i it is clear that we have to pursue policies that both strengthen the near-term economic recovery and address the long-term fiscal imbalance. these policies are not incompatible. in fact, the cbo director who testified last week, this is what he said, '. a policy that widens the deficit for a few years would be beneficial for the economy over that time, especially if we were combined with a plan that would later narrow deficits relative to the current policy projection

talk combining those pieces is important, having those pieces together would provide the strongest boost to economic activity in the short term. and so, mr. chairman, we want to hear your views, and i hope he will speak further about what director l. north said. >> thank you very much call mr. chairman. chairman nelson, ranking member sessions, and other members of the committee, i appreciate this subject today to discuss my views of the economic outlook of monetary policy, and the challenges facing fiscal policy makers. over the past two and a half years the u.s. economy has been gradually recovering from the recent recession. about conditions of certainly improved, the recovery has been frustratingly slow, particularly

from the perspective of millions of workers remain unemployed or underemployed. moreover, the sluggish expansion as of the economy vulnerable to shocks. indeed supply chain disruption stemming from the s quicken japan, the surge in the prices of oil and other commodities and spillovers from the european debt crisis risk derailing the economy. fortunately, over the past few months and begin as a spending, direction, and job market activity have shown signs of improvement in economic projections just released the federal market committee participants indicated they expect somewhat stronger growth this year than in 2011. the outlook remains uncertain, and close monitoring of economic developments will remain necessary. as is often the case the ability and willingness of tousles to spend will be an important determinant of the peso was the economy expands. real consumer spending rose moderately households continue

to face significant headlines. notably real household income and wealth stagnated in 2011, and access to credit remains tight for many potential borrowers. consumer sentiment has improved, remains at levels that are still quite low by historical standards. household spending will, in turn, depend heavily on developments in the labour market. overall the job situation does appear to improve modestly over the past year. private payroll employment increased by one of the 60,000 jobs per month not counting, of course, the first month of this year. the employ of the rate fell by one percentage point in new claims for unemployment insurance declined. nevertheless, as shown by indicators for the rate of unemployment and the ratio of employment to population, we have a long way to go before labour market can be said of the auburn normally. particularly troubling is the unusually high level of long-term unemployment.

more than 40 percent of the unemployed have been jobless for more than six months, roughly double the fraction during the economic expansion of the previous decade. uncertain job prospects along with tight mortgage credit conditions continue to hold back the demand for housing. although interest rates and conventional mortgages on the drop in home prices in recent years have greatly improved the affordability of housing, both residential sales and construction remain depressed. our persistent excess supply of vacant homes largely stemming from foreclosures is keeping downward pressure on prices and limiting demand for new construction. in contrast to the business sector has been a relative bright spot in the current recovery. manufacturing oppression as increased 15% and capital spending by businesses has expanded over the past two years here and in part by the need to replace aging equipment and software. moreover, many u.s. firms have

benefited from strong demand from foreign markets over the past few years. more recently the pace of growth and business investment has slowed, likely reflecting concerns about the domestic outlook and developments in your however, there are signs that these concerns are based. it business confidence continues to improve u.s. firms should be well positioned to increase capital spending and hiring. larger businesses are able to obtain credit as directly low interest rates and corporate balance sheets are strong. the many smaller businesses continue to face difficulties in obtaining credit surveys indicate the credit conditions have begun to improve modestly for those firms as well. globally, economic activity appears to be slow and restrained in part by spillover from fiscal and financial developments in europe. the combination of high growth levels and weak prospects and a

number of countries has raise significant concerns about fiscal situations leading to substantial increases of sovereign borrowing costs, concerns about the health of european banks, and associated reductions in confidence in the availability of credit in the euro area. resolving these problems will require concerted action on the part of european authorities. they're working hard to address they're fiscal and financial challenges. nonetheless, risk remains that development in europe or elsewhere made development favorably and could worsen prospects at home. we are in frequent contact with european authorities and will continue to monitor the situation closely and take a real step to protect the u.s. financial system in our economy. let me now turn to a discussion of inflation. as we anticipated, overall consumer price inflation moderated considerably. in the first half of the year a surge in the prices of gasoline and food along with some

services had pushed consumer inflation higher. around the same time supply disruptions associated with the disaster in japan put downward pressures on motor vehicle prices. as expected the abbott test from these influences faded in the second half of the year the inflation to decline from the annual rate of three and a half percent in the first half to teeeleven to one and a half%, close to its average pace the proceeding two years. in an environment of well anchored inflation expectations, still will commodity prices as substantial slack in labor and product markets we expect inflation to remain subdued. the fomc decided to maintain its highly coveted stance of monetary policy, and particularly the committee decided to continue its program to extend the average maturity of the security holdings to maintain its existing policy of reinvesting bendable payments on

its portfolio securities and to keep the target rate for the federal funds and zero. the committee now anticipates that economic conditions are likely to warrant exceptionally low levels, at least three late 2014. as part of our ongoing effort to increase transparency and predictability of monetary policy calling this meeting the fomc released a statement intended to provide greater clarity of the committee's longer-term goals and policies strategies. the statement begins by emphasizing the federal reserve firm commitment to pursue the congressional mandate to foster stable prices and next on plummet. the fomc stated its collective view that inflation at the rate of 2 percent is measured by the annual change in the price index and personal consumption expenditures and his most consistent of the locker room at the federal reserve statutory mandate and indicated the

central tendency of fomc participants current estimates that the longer run already unemployment is much rain five and 6%. the statement knows that the statutory objectives of generally complimentary, but when they are not the committee will take a balanced approach in its efforts to return both inflation and employment to the desired levels. in the remainder of our remarks of like to briefly discuss the fiscal challenges facing our committee in the country. the federal budget deficit widened appreciably and has averaged 9 percent gdp over the past three fiscal years. this exceptional increase in the deficit has mostly reflected the automatic cyclical response of revenues and spending tow economy as well as the fiscal actions taken to ease the recession and into recovery. as the economy continues to expand its stimulus policies are phased out the budget deficit narrowed to the next few years.

unfortunately even after economic conditions return to normal the nation will still face a sizable structural budget gap the current budget policies continue. using information for the recent budget ballot by the cbo one can construct a projection for the federal deficit assuming that most expiring tax provisions are extended and medicare physician baena rates are heralded a current levels. under these assumptions the budget deficit will be more than 4 percent of gdp in fiscal year 217 -- 2017. even greater concern is that long run projections based on plausible assumptions about the evolution of the economy and budget under current policies shows tertial budget gap increasing significantly further overtime and the ratio of the outstanding federal debt to gdp rising rapidly. is denim is clearly unsustainable. these structural fiscal imbalances did not emerge overnight. to a significant extent data

results of an aging population and especially fast rising health care costs. notably federal outlays could rise to more than 9 percent of gdp by 2035. although we have been warned about such developments for many years the time the projection to become reality is coming closer. ..

economic theory do not the threshold which the risks associated with the public debt increased remarkably we can ensure that without corrective action on the trajectory will move to the nation ever more closer to that point. to achieve economic and financial stability come in u.s. fiscal policy must be placed on a sustainable path that ensures that debt relative to the national income is at least stable or preferably declining over time. of tannin this should be a top priority. even if the fiscal policymakers address the urgent issue of the fiscal sustainability they should take care not to unnecessarily impede the current economic recovery. fortunately the two goals of

achieving long-term fiscal stability and avoiding additional fiscal headwind for the current recovery are fully compatible. indeed they are mutually reinforcing. on the one had a more robust recovery will lead to lower deficits and debt in the coming years. on the other a plan that incredibly puts fiscal policy on a practice sustainability but help keep longer-term interest rates low and improve household business confidence thereby supporting improved economic performance today. fiscal policy makers can also promote stronger economic performance in the medium term for the careful design of tax policies and spending programs. to the fullest extent possible, our nation's tax and spending policies should increase incentives to work in safe encouraging investments in the work force to stimulate private capital formation, promote research and development and provide necessary public infrastructure. although we cannot expect the economy to grow its way out of the fiscal imbalances, a more productive economy will ease the

trade offs that we face and increase the likelihood that we leave a healthy economy to our children and grandchildren. thank you. >> thank you, chairman bernanke. on page four of your statement you testified the current estimates of the longer run a normal rate of unemployment is between 5.2 to 6%. how does that compare for example to unemployment during the years of the 1990's? and do you think we are destined to have a high year unemployment than in the 90's? >> unemployment did reach the levels below that not only in the 90's but earlier in 2000 as well. we are concerned that over the past few years there has been modest increase in the sustainable long rate of

unemployment, one is contributing to that is the fact as i mentioned in my remarks about 40% of the unemployed have been unemployed six months or more and those folks whose skills are attached to the labour force is digital for them to find steady employment in the longer-term i like to emphasize and estimating that sustainable long run rate of unemployment we are in no way saying this is a desirable state of series of events of circumstances. we are saying monetary policy can't really do much to bring unemployment in a sustainable way below those levels based on the current information. however, other policies affecting work force skills, the structure of the labor market, fiscal policy, trade, all kinds of other policies could affect and bring down that sustainable rate of unemployment and i hope congress will consider ways to address that problem.

>> we have started to see a revival of the manufacturing sector. 50,000 jobs added last month. tell us is their anything you can do that you would suggest that we do to hasten the return of the manufacturing jobs? >> the recovery has been an encouraging development. manufacturing has led this recovery very significantly. one reason that it's doing so is that american manufacturing has become increasingly competitive in the global stage and has emerging markets and other countries grow quickly, they represent the source of demand for the manufacture of goods as well as the services so clearly maintaining the open trade with the other countries and maintaining those markets and important steps i think another airy and that's important is trying to ensure that the u.s.

remains a leader in advanced education research and development and the like because many of our manufacturing firms, for example, high-tech firms are often clustered around universities are producing the most sophisticated most technologically advanced products that is where we have a comparative the advantage in the united states and maintaining our technological leadership would certainly be a boost to our ability to export. >> you know the decisions that we will have to make with regard to budgetary policy coming up and, you know that there are all these attempts to get agreement between the white house and the congress last year that did not make it.

one has even held a press conference i think some 40 of us in the senate warning the super committee to go big with a 4 trillion-dollar cut in the deficit over the next ten years. would you recommend going forward since all of that field steep cuts that hit at a handful of the safety net programs or we should place more on reducing future deficits over the long term in a more broadway while being fiscally conscious of the recovery efforts in the near term? >> i was supportive of being aggressive last summer. a number like 4 trillion was the cbo estimate of what would be

needed to stabilize debt to gdp ratios over the next decade which is an important objective obviously, but i would like to urge the committee not to be solely attentive to the ceo window. much of the problems in the past rise after the next ten years ago now 15, 20, 30 years as the population ages, as health care costs rise and so one. so what i would advocate is looking broadly, having a broad based discussion looking at sustainability over the long run i think that is going to take a lot of work on the part of congress. it's really not my place to make detailed recommendations to make specific components of the budget but i urge the congress and i heard many people on the

committee that we need a long-term plan to put our debt to gdp ratio over the fiscal burden on a sustainable path. >> senator sessions. >> thank you mr. chairman and mr. bernanke remarks have been very insightful and we all have different opinions but i think you are pretty close to what we need to be doing and we tell you that. i would yield to senator grassley. >> first one to compliment you on your movements towards transparency, and i think even the more you can do with that not just for the sake of letting people know about the economic impact of your policies of that there is not the security that

existed, but to do it for the purpose of educating the public more about the important role of the federal research for people to think that there's some conspiratorial aspect of everything the federal reserve does. and this comes up not often, but it comes up too often in my town meetings and i think the more you can tell people about what your role is my question is based upon first of all if congress fails to act on january 1st, 2013 or a nation is going to see the largest tax increase in the history of the country and people don't understand that's not going to happen without a vote of congress and the three and five times trillion dollar tax increase and on a few other policies ceo estimates the

unemployment rate at the end of 2013 could be as much as two percentage points higher gdp growth could be as much as the three or four percentage points forward. do you agree that the failure to prevent this tax increase will have a serious negative impact on our economy in terms of gdp growth and unemployment and if so at what point in the 2012 will be uncertainty of the tax increase be in to hinder economic growth? >> the mcconaughy agreed to give a series of lectures at george washington university is part of a class of and i will be talking about that issue. i agree basically with of the cbo analysis that with no action taken on january 1st, 2013 between the expiration of tax cuts sequestration and other measures there will be a very sharp change in the fiscal stance of the federal

government, which by itself with no compensating action would indeed slowed the recovery. cbo predicts the 1.1% growth in the increase in unemployment and that is based entirely on the current law assumptions so assuming that will take place i want to be very clear that on a in a way stepping back from my strong advocacy of maintaining fiscal system in italy and long term it is critically important that whatever actions are taken to mitigate the short run in practice of some of these changes the plan for the longer term return to sustainability but there is a very sharp change in the fiscal position and in very short time might slow the recovery. and i don't know exactly when

the certainty would become a factor but surely when we get close to january 1st and congress isn't given a clear road map for how it plans to proceed that would certainly affect the planning business decisions, household decisions as they look ahead to the next year. >> my second question will have to be my last one. you recently announced the committee goal of the inflation target of 2% currently stands above the fed target of 2.2%. separately you also announced that the federal fund rate would likely be held near zero through 2014. this question comes from the point of view is there's a trade-off between the decision making on the unemployment and the on inflation and the unemployment would have far higher priority. is the federal spending keeping inflation in check is a secondary priority to achieving full employment, and to what

extent is the fed willing to act should inflation continue to rise? >> well, senator, it is true that a 12-month backward look at inflation chose to rose about 15% but the energy price increases of early last year have, you know, have not real kurd our projections are that the remainder a subdued probably the lower 2% target going into 2012 and 2013. so because the monetary policy works with a lab we have to think about where inflation is going to be and where it's going to go in the past it's been about two years over 2% a year over my tenure as chairman and we expect it to be at 2% or below in the next couple of years that is consistent with the policy of the accommodated policy. i want to disabuse any notion that there is a priority for the maximum employment.

we say that we take a balanced approach conagra's gave a do mandate -- congress gave a dual mandate. we work back to the target. the main goal of the statement is not to announce any change in policy. the main goal is to give greater clarity about how we define the long run objectives but we are certainly going to work to bring both parts of our mandate towards the design your of levels. >> i think it is good you were going to the university, george washington university but if he wanted to come to the grassroots of american university of iowa >> we have it stream bottom line, so it's open. >> thank you, senator grassley. senator wyden? >> thank you, chairman nelson and chairman bernanke. i want to ask about the shock to the economy that you have been discussing. you talk about the pace of the

recovery being slow coming and particularly for the millions of people who are hurting, unemployed, underemployed and this comes together as part of a sluggish expansion that's left the economy vulnerable and shocked, so i can see plenty of shock on the payroll tax debate down into the quagmire talking about two months or another short-term effort we mentioned here up to read another mentioned the question of sequestration and to me that alone puts a very negative spectacle and the lame-duck session in the 2012 congress would see the same sort of flailing that you did after 2010. so my first question on the

shock issue. doesn't it searches of our economic system has all of this delay and the inability to get decisions on the payroll taxes or others isn't that in and of itself a shock to the system in terms of what it does to business confidence and predictability and certainty? >> policy uncertainty is one of the things businesses complain about. it makes it harder to plan. we face the same issue as regulators with regulatory uncertainty and obviously to the extent that a greater clarity can be provided would be helpful to the economy, and is it fair to describe that as yet another shock to the system? because the tax reform has been to try to figure out how to force action early because when

you don't, when you have the most sluggish expansion to see the shock and the reduction in confidence and predictability of the likes of is it fair to say that delay in this kind of climate when it comes to getting the payroll tax issue were killed and others that in and of itself as a shock to the system? >> i did cite the example of the debt ceiling debate last summer which was a shock and very consumer confidence, more generally loss of confidence that agreement will be reached for uncertainty with the agreement will be reached is a negative for confidence. >> let me ask you about the question to me the anecdote to the economic shock is the question, the kind of cushion that start us on the road to predictable more certain

opportunities to promote economic growth and tax reform strikes me to be right up at the top of the list. and as you know, super committee, we have senator portman to some very good work on this, did it in the super committee. a lot of that work has been done now. there are tough political calls to be made of course to address the texas. the principles are pretty clear. much of what was done in 1986 cleanout a lot of the giunta as special-interest breaks to hold down their rates and keep progressivity. wouldn't longer-term predictable tax reform be the kind of cushion but would help address the shocks that you are concerned about for the economy? >> predictability is good and also a good tax code itself to promote growth i think most economists agree that a simpler and fairer broadbased tax code

would be constructive for growth, yes. >> wouldn't piecemeal changes, where again, we go for another round of temporary credit on a temporary extensions, modifications to the provision, wouldn't that contribute to the uncertainty and lack of predictability the would make it hard for us to grow? >> cementer as you appreciate politics is complicated and sometimes not everything is feasible. the more comprehensive and clean tax reforms spending reforms would be good, efficient from the economic point of view and reduce uncertainty. >> my concern is absence the kind of comprehensive reform that i think would be a strong

of a cushion the shock that you are talking about i just hope that the country will see how important it is to steer away from yet more piecemeal kinds of changes that need this broken tax system even more dysfunctional and don't give businesses and consumers the predictability they need to generate the growth that you are talking about. thank you, mr. chairman. >> thank you, senator wyden. senator johnson? specs before mr. german and german bernanke for coming here to testify. i don't envy your task. it seems to me that you've been given the task of trying to address fiscal mismanagement with monetary solutions and it just doesn't work long term. i think we are seeing that starting to collapse in europe as people try to come to the rescue of greece. i'm not sure how four be behind we are. getting the fiscal house in order the sustainability seems

to break down between how much revenue can be raised and how much we spend and to me it is clearly a spending problem. we spent $1.9 trillion, last year 3.6 coming according to the president's budget in ten years if you like spent $8.000000000000. and i am concerned we dilute ouselves in thinking that we can actually increase revenue by potentially raising tax rates we are trying to get us up above the 50 year average of 18.1% of revenue extracted from this economy. our long term is 22% comes over the last 22 years we've run this structural deficit and there is an article in "the wall street journal" about maryland's attempt to tax millionaires when they did that back in 2007 we estimate it would raise three injured $30 million by doing that. in fact, the study was just about 120 million. so about 46% of the latest revenues why would like to give

your comments on the federal government ability to extract more than that 50 year 18.1% long-term average in revenue. >> welcome a first, on the broad question of spending and taxes, you know, there is a deep philosophical debate about the role to poke the size of government and you were obviously quite aware of that and that's something congress has to work out and people have elected you to figure out the right role of the government in the economy. you know, i think that it's true that beyond a certain point higher taxes impose cost on the deficiency of the economy, and those are trade-offs converse has to consider. so, in particular in a situation like the state where millionaires can easily cross the border and live in virginia instead of a maryland, it's

clear much of it could be lost simply by legal avoidance practices. >> looking for the cause of problems and also looking for keen metrics that that relationship to gdp i fink in an even more fundamental one speaks to the problem the bible or do is the size and scope of the control into the lives of the regulation and the cost of government we've increased about from but 20.2% average over 50 years to 25% in 2009, 24 projected by the heritage foundation to increase the 35% by 2035. in the end socialism and communism as a member and it's the size of the governments to the economy. do you think 24, 25% and higher as a metric of the size of the government is a healthy metric? >> senator, under the current plans if there is no change to our entitlement programs, then

the demand for spending, the amount of spending the government is committed to is going to rise even beyond that level. so at some point congress has to make a trade-off between what the spending programs are and to raise it i've often said by men favor of all of arithmetic. if you want a lower tax economy which has benefits from efficiency perspectives you have to make the tough decisions on the spending side and vice versa if you want to spend more you have to figure out how to raise taxes and the revenue. so, a mainly try to urge congress to make sure they're looking at both sides so there's a balance between the two. >> they begin with presidential leadership. i'm new to this town and i've never seen anything accomplished in washington without very strong presidential leadership and i'm sure president obama has been phoning in the last couple of years in terms of the debt and deficit issue.

one question i would have and i probably don't have a whole lot of time for it the terms of uncertainty caused buy not the senate passing a budget i realize the budget control act we've deemed a few members. can you speak to a lack of an actual plan that makes sense certainly business people to consumers you can speak to how harmful this in terms of a comic growth. senator wyden made the same question there's uncertainty about the future of the tax code, the government programs and so on, and - for growth of that i think it is because firms like to have certainty like the older plan to take on as a regulator we need to make regulations as clear and as effective as possible. >> senator begich.

>> thank you mr. chairman and mr. bernanke for being here and the conversation with several weeks ago with transparency there's efforts and i am excited to see that you are going to be held in the circuit and will be anxious i might even turn into one of those to see how they go. senator johnson brought up the point i want to make sure there's equal treatment. i am new here and i appreciate, i'm not here to defend the president but we are all to blame for this dysfunctional washington, d.c.. it's not just the presence congress that is also part of the problem here. that's what i hear when i go back home and because of that, and you kind of answered it and i think i want to clarify, or make sure that i hear you are saying and that is because of the inability for this body to figure out and compromise and figure out pathways that have long-term certainty it does have an impact to the consumer confidence and the business confidence of this country.

yes? >> yes. >> so, you know, what i've learned, i've been an executive come life in a family member now in this legislative body as the legislative bodies love the executive close to blame the body but at the end of the day, 100 of us out of 300 million people here to make some decisions. so it's incumbent upon us if we intend to move this country for work to be more certain about our long-term decisions come true? >> that's important because i know as a small business person from the age of 16 that in decision doesn't create certainty. this body has a great decision to push it off. i want to make sure we are all equal on this. there is no one body or another so i'm kind of going for you to comment on the other side. second, all i heard and i want to get your comment to make sure that i'm clear on this from your response to senator grassley in regards to the bush tax cuts

that may expire at the end of the year what might happen. but also, isn't there another part of this didn't pay for them, so it had a long-term problem which is what you're opening statement diluted to with these short-term things but the longer-term recall is coming. so when you have these schemes that have a tax scheme that costs $4 trillion to pay for today you're going to pay for it tomorrow and you are going to pay with interest. isn't that also a problem to this equation as you deal with tax policy you've got to pay for it, right? >> yes, senator. i wasn't endorsing any -- i'm just sitting the cumulative effect of all these different things, expiration of the payroll tax and sequestration, the bush tax cuts and other things collectively would be a fairly sharp change in the near-term fiscal position. i'm not saying don't pay for it

i'm just sitting do it over a longer period of time but do it seriously. i agree with senator sessions concern if you push it off you want to make a credible story on the plan but when it phases and over a period so the economy will not get a huge pot hole. >> i just want to make sure that this kind of in this discussion because i was one of those that supported the 4 trillion. i think we need to be aggressive about this and balance against what we are trying to do today because if you get an imbalance you are going to have a direct impact. i read your latest peace i don't know if it's written by you or your interview with bloomberg in how the economy is moving its going to be a slow drag but it's actually moving in certain areas. you've actually indicate devotee get surprised a lot of people, and that is a good sign. consumer confidence to me is a pretty important piece of the equation because if they are not confident, it is amazing how many are still not refinancing

today. at 325% interest rates it boggles the mind because i think they are not confident it. part of our job is to help them know we have a plan at least for something to help the confidence. do you think consumer confidence is an important part of this long-term equation? the combination of how they feel. >> surely. consumers make their spending plans and employment plans, retirement plans, everything based on what they see in the future. how the expected the economy to evil in their own opportunities. if you look at the consumer confidence survey people are saying they don't expect to see the real incomes grow, they will be flat to down the next few years and that is in a situation that encourages people to buy a house. islamic let me ask one more question because our time is up. i come from an energy state oil

and gas and you had deluded to a couple issues that the activities in the middle east could have an impact to our price of fuel energy here. can you may be just elaborate? i'm a big believer we need to do more domestic production was a we have less of the shock treatment from the other sources of our control. can you give me any additional comment on that? >> first we saw in a modest way early last year significant increase in the prices can be disruptive but because it creates inflation and also because it acts like a tax that makes consumers less able to spend on other goods and services to read a major disruption that sent oil prices up very substantially could stop the recovery. that being said, the new process these and approaches that the u.s. is becoming much more prolific producer of fossil fuel and is also making progress on

them on a fossil forms of energy. for the first time in some time i think there's a chance we can move in the right direction in reducing our exposure to the supply disruptions. >> thank you. the last one to be part of the equations of thank you. thank you, senator begich. senator enzi. >> wyoming wants to be part of that as well. i want to thank the chairman for all of the information that you've given at your vp the appearance you have to do before all the different committees of the senate and the house. it's all very helpful and i know that everybody hangs on every word that you say which has to be pretty daunting. i appreciate the emphasis that you've placed on the deficit report. i still think that if that had been broken into parts everybody could have voted against the part they didn't like and all of them would pass and could come to the senate and we could have passed it to do these go too.

but to avert the fiscal catastrophe most of the european governments enacted austerity programs that actually reduced government spending and a recently sovereign bond auctions by the fiscally troubled bureau's own countries enjoyed surprising demand which resulted in the yield below expectations. "the new york times" suggested that these options are decided that the austerity measures have comforted investors in the word them back into the bond. despite the package of the budget control act, the u.s. federal spending is expected to go in 2012 compared to the budget of the country's to you believe the u.s. has entered a period of austerity that some have suggested? >> i think that there's some progress in the countries to words fiscal balance has been encouraging to investors but there's other important factors

of the european central banks large loan to banks have helped stabilize the financial system and many banks that use money to buy short-term government sovereign debt from the country's like greece and portugal and ireland. so that's a fairly complex situation. islamic with me ask if they hadn't passed to the budgets do you think they would have been -- >> countries like greece and portugal have no option. they couldn't borrow. they are excluded from the market. they are relying now 100% of the imf and european union for funding and in order to qualify for that they've got to show they have a plan to restore so they had no choice and they are working to try to get to that position. i would say in terms of the reunited states i described

about 2013 right now i would say overall fiscal affect on our economy are neutral at this point and clearly from a longer perspective we haven't taken the actions to put the government debt on a sustainable path. >> switching the federal reserve like any bank tanks in deposits on the liability in the lens of the funds by purchasing the treasurer secure the assets and the federal reserve then remits those profits to the treasury and the payments are classified as government receipts for revenues and the federal budget. remittances more than doubled since 2008 and cbo estimates they will remit 77 billion in 2012. i'm curious as to whether that is after the consumer protection bureau 10% comes out or not and the estimate there will be 511 billion over the next ten years. what are the federal revenue and why have they gone up since

2008? >> the federal reserve and admitted in the last three years about $200 billion to the u.s. treasury. i think that does not -- i think that includes the money paid to the cftc. i will double check that for you the treasury has gone up so much prior to the recent years we rarely remitted more than the $25 billion in the year, so the reason it's gone up so much as its part of our monetary policy we have gaziano purchased treasury securities, longer-term treasury securities and mortgage-backed securities, agency mortgage-backed securities. the return on the securities comes to the fed and we take it and pass it back to the treasury, so that is where the profit is coming from in addition the programs we undertook in the crisis have

also turned out to be profitable and take the money back to the treasury as well. >> thank you. switching again. how effective do you think the japanese efforts are to stimulate the economy during the 1990's? i don't think there's have recovered and placed an emphasis on europe but i think japan has real consideration. >> japan has had a difficult two decades certainly. i think that the there are important differences between japan and the united states. 1i would particularly stresses japan has had deflationary following the crisis now for our long time to read and combined with the interest rates that can't go below zero that creates the financial tightness in their economy which prevents to some extent investment and growth. also the japanese were not as quick as the u.s. to recapitalize their banks as we did in 2009. they were the first in the situation.

they didn't have the benefit of seeing others deal with it and grapple with it. we learned from them. they continue to provide monetary policy support. i think it's important to note that one other difference that the japanese demographics are quite different from that is the u.s. work force is actually beginning to shrink because they have a very low birth rate and low population growth rates and that certainly going to be a factor that's going to keep their growth down in the period to come. >> thank you. my time is expired. >> cementer merkley? >> thank you mr. chair for your testimony. and i wanted to start with the unemployment insurance in the conversation that is going on, and this is one of those kind of set of things that you refer to as changing on the near horizon and the conversation is going on about whether to sustain the 79 weeks standard, and how to you

see that piece of the puddle fitting into the issue that would affect the economy? >> unemployment insurance and as multifaceted. on the one hand obviously it's provide some support for people who are unemployed or half unemployed family members and those people will be more likely to spend which will add to the demand in the economy. probably on the margin it leads people to wait a longer. the spells of unemployment may be longer because of unemployment insurance but that too is a mixed blessing because in some cases the extra time allows people to find more appropriate jobs with a higher wage instead of taking the very first thing that they see. there's a lot of interesting ideas out there for the redesign of unemployment insurance. are there ways for example to create incentives for more training building during the

period of unemployment through the way in which that employment is paid. so i think as you discuss if it would be useful to look at the time and ask whether or not, for example, part of the payments could be used training and skill building. >> thank you. and as you know there's many other proposals out there for the redesign that may be more of stopping the continuation of the unemployment insurance and prevent the way it works so that is a real concern of this conversation. but i gather from your point is that it plays a significant substantial role in the period love - unemployment in creating a foundation for demand and the work force readjusting to the skills of the changing economy

is in a riding from restating what you just said. >> it helps on those dimensions. there are situations -- i think it has to be said that in europe for example there are some countries where unemployment insurance is so generous that it creates a permanent on a plate glass which we certainly don't want to do. so there are the ones is you have to strike but those are some of the considerations. >> thank you. turning to homeownership, you've noted that excess supply of homes stemming from foreclosure the prez is the housing demand and has an impact and you sent a paper to congress laying out a number of ideas many of which my colleagues and i have been discussing over the past two years and we have less progress on than we had hoped. one of those concepts is to try to enable large groups of homes that are setting they can't --

vacant to enter the rental market and anything we can do to get the homeowners back into their homes as well but it seems like on both fronts helping the homeowners and when that is not possible, giving the homes out of the vacancy would be a strong strategy to stop the decline and the volume and start to restore the housing market. if you want to add any comments or thoughts on that. >> yes i think is interesting and we provide some analysis as you say in the background paper that recirculated. right now we are seeing the house prices either flat or falling. down 40% in nominal terms and meanwhile there is a shortage of rental housing. rent is beginning to rise so there's an imbalance to the extent we can move housing from single-family to rental that is positive. the gse have to mentioned a

trial program to see if the details can be worked out and they've announced a program. of the related point that you elude it too is the heavy cost of leaving home is unoccupied for long periods of time. vandalism and neglect will cause the house of value to decline significantly for the neighborhood or so on, so the efforts to maintain continuous occupation by an owner or a renter is also a positive. the rental programs to that but so potentially might the alternatives to foreclosure like rent to own or other sales in lieu of other things that maintain continuous inhabitation of the house. thank you. >> senator cornyn.

>> thank you for being here. if the unemployment rate in america for the fourth quarter of 2012 according to the cbo the projected that 8.9% for the fourth quarter of 2012. do you agree with that? >> 2012 or 2013? >> 2012. >> no, our forecasts are for unemployment to continue to decline moderately. we see growth that something close to the potential under the normal circumstances would mean that we are creating enough jobs to provide the new entrants to the labour force but not making the shock improvements on the unemployment rate. >> i realize the hazards of the economic forecasting. i think cristina when the stimulus was first proposed said unemployment would be down around 6% in the first quarter

of 2012. obviously that wasn't correct, so -- let me just add delete to ask you some things that might affect the unemployment rate to the first 8.3 per cent of unemployment. but what is -- what does the federal reserve project the real unemployment rate to be including people who have given up looking for jobs and people who are underemployed? what would that rate be? >> we don't make the projections specifically of those but i took the point it's important not just to look at the unemployment rate, which reflects only people actively seeking work but there's also a lot of people who are either out of the labor force because they don't think they can find work and that is a significant number and there's other people that are working but part time and they would like to be working full-time but they can't find full-time work. 8.3% understates the weakness in

a broad sense on the other hand all these various measures of unemployment have been moving but of course these broad measures are definitely higher. >> let me ask about what is happening in europe. is europe in a recession right now? >> well, certainly the southern countries including the ones that are under a lot of fiscal pressure have been contracting, and certainly speaking europe as a whole was growing the essentially at zero in the second half of last year. so certainly parts of europe are in recession but they're the whole euro solnit goes into recession remains to be seen. the ec itself has predicted a mild recession and has warned that this might occur. we think that is a possibility, but the severity and the length

of it remains at this point uncertain. >> that is an important question or issue because europe by is a lot of exports from the united states which is an important part of our gross domestic product, correct? >> we've already seen a decline in exports to europe although they are about 2% of our gdp and so it's not totally make-or-break but it is an influence. >> in addition to exports which give us an indication of what our economic growth will be in job creation, you will also have to calculate in the real consumer household income which is down i think the lowest since 1995, is that correct to your recollection? >> as i mentioned in my testimony, the real income was basically very close to flat

over 2011 and households are quite pessimistic about their future income. >> and they've actually seen the increased costs of goods through commodity prices, food, fuel, things like that. they've seen a slight increases in taxes if you combine state, local and federal taxes they have seen higher health insurance costs. all of those things have a depressing effect on consumer spending and on the growth of gdp, don't they? >> they have the same as the health care expenses. >> then there is well intentioned government policies and i will talk briefly or mention briefly the 1% depreciation that expires in 2011 for the capitol investment.

isn't it reasonable to conclude that businesses that could make that kind of capital investment would take advantage of that 100% depreciation that expires at the end of this year and would make it less likely we would see an increase in the capitol investment next year because businesses would have already have taken advantage of that policy in 2011. >> we would expect to see time shifting out and this is one more element of this jury did change in the stance that takes place in 2013 that i mentioned. >> so all of those things taken together, lower capital spending, lower consumer spending growth, declining exports and spending drag from all levels of government all of those would tend to have a negative impact on unemployment projections and other words, it would make it tougher for the economy to grow and create jobs rather than easier, correct? >> that's why we continue to forecast a moderate recovery as

opposed to one that would undo the damage of the recession. >> senator warner is up now and just by way of preview of the coming attractions i want to follow the sessions will and save myself until the end so it is then going to be senator to me, senator portman and is that all right? senator warner? >> thank you for your service. i want to continue some of the line my colleagues have asked and with what senator enzi said appreciate your support for the notion of going big and recognizing we have to have a comprehensive deficit-reduction plan. we should have found conventional wisdom and not do this until laughter the next

election cycle. i still find it as a business guy would be hard for me to explain to my shareholders if my company was in dire financial straits, and i said to them we have a plan and i am going to get back to even the spring of 2013 when none of this is self corrupted in the meantime. on the comments made in europe we've made the point in number of them have austerity plans i believe every one of those countries when they have had cutbacks also include increased revenue epidemics, and that's correct, isn't it? >> yes. >> what we have seen from somebody personally was been very interested in what's going on in the u.k. do you have any advice for the lessons learned if we were to put a plan in place on the phasing in of whether its revenue increases or dramatic cutbacks on spending.

how we face those and over a time frame or based upon economic recovery metrics? >> welcome a that's a judgment in the long term problem it doesn't have to be all done today. on the other hand, gesturing towards the future without taking any concrete steps are incredible steps is not going to be effective either. so i think the more you can demonstrate the will and commitment to sustainability over the longer term by which i mean and least ten years but beyond that the more flexibility there will be to address near-term concerns relating to the recovery and so on the next two or three years. you need both. you need both.

i think once again i agree with senator sessions simply just promising future action risks at least at first market reaction, adverse reaction in terms of confidence and so on. it's the combination i think could be effective. again, the near-term risk of a couple of years of recovery, but there's nothing that stops us from very soon also playing out in some detail with some commitment with the longer term plan is to address the fiscal problem. >> in advance of passing that plan one thing that would be at least helpful to me as it might be easier to comment about what those benchmarks of to be regardless whether it is revenue increases or spending cuts when they ought to be phased in. let me follow upon senator

cornyn raised about unemployment and all i agree we've got to do more things. one of the interesting thing is we have right now i think it seems like america's rallying cry at least we are better than the e.u. and the give me liberty or give me death as that american statement but one of the statements we have by the unique circumstance with the challenge of enormous capital coming into the system where we are close to zero and even the negative rates of return for that capital coming in one of the things we have consensus on as we have been dramatically underestimated or under investing in our infrastructure broadbased, and that gives me the competitive advantage of turning into a competitive disadvantage, and what private for couples and on the sidelines have you or the infrastructure

bank and pos is we have a bipartisan one that doesn't create the grants on the gse that is more the lone support model after opec or xm and might be about to get capital washing off the sidelines in to what is on the employment standpoint and long-term? >> i haven't looked at the infrastructure bank in detail and i am getting a little would weary of taking positions, but i would think the following point is much of the deficit discussion has been about the total revenue and spending. that is only the first cut. beyond that we have to ask a result is the tax code efficient, fair, simple, etc., and on the spending side are we spending in ways that are effective? we don't want to build the monuments, we want to make investments whether it's in

people or infrastructure what ever they are going to pay a return. to get from the business perspective. you are much better off making the productive investments. >> senator to me to the estimates before mr. chun and mr. bernanke for being with us on once again and for your time and patience. i appreciate it. let me start by echoing the comments of senator grassley. i want to compliment you on the decision that you have taken to enhance the transparency of the fattah's activities. i know you've put a lot of thought into this and advocated this for a long time and i have long shared your view that it's better for our economy and for everyone involved if the fed does operate with greater transparency. specifically i like the fact that you have articulated the target. we could have long been the

interesting discussions about what exactly that should be but the fact that he or specify a number is constructive and so i want to thank you for the development. i want to talk a little bit about the dual mandate that you have to contend with and then of these combined simultaneously objectives of providing full employment and maintaining price stability. >> you said if i think you have it right the fed is through the monetary policy can control inflation over the long run, but cannot control unemployment. is that your characterization? so the thing that i'm concerned about, and i am not asking you to criticize the bill mandate but i know you're going to live with all of the land as a place to do and i fully understand that, but isn't there a real possibility that these objectives will at some point not be complementary? in other words it seems to me very likely for instance that

the unemployment rate is going to stay above the optimal full employment level for a number of years. it strikes me almost anything that inflation can kick up above the targeted level that we have set. it has to leave recently. it could almost any time. if that were to happen is seems to me you have this tension between the two simultaneous objectives. you've described quite sensibly that he would take a balanced approach to dealing with this. but doesn't that necessarily mean that in that scenario where unemployment remains persistently high and the inflation rate kicks up above the target wouldn't you necessarily have to back off that targeted level or pursue a policy that would tolerate higher inflation than you're own target? >> so again, this of course is the dual mandate oriented approach as you understand, and

we felt the main benefit of being clear was to provide more information about what our long run objectives were to be more quantitative information about that. the situation that you're describing to be clear is hypothetical and isn't currently the situation. inflation looks to be at or near let me be clear about wanting. we are not going to seek higher inflation in order to advance on employment. it's possible that because we don't control in the short run perfectly we have shocks that would drive both objectives away from the target and at which case in a very symmetrical way we would be returning both with a target but would have to take account of the other part of the mandate, so it could affect the speed at which we return the same token if inflation is high

so there would have to be some interaction of the two things and it is fully balanced and symmetrical in that sense. >> that is roughly what i thought he would have to say. let me try a different approach. it seems unlikely to me any way that the fed would pursue such an accommodative policy as it has been pursuing and is pursuing if it were not for the employment mandate. i am concerned about some of the unintended consequences of maintaining zero interest rates, negative real interest rates and i wonder if you would comment on some of these, and i just think about some of the implications. we have savors being punished for this of least twice, once by virtue of the fact that after sacrificing whole life to accumulate savings they get no return, and then the very real possibility that the value of the savings would be eroded.

second, we are encouraging the excessive risk-taking. third, it seems to me this drives a misallocation certainly has the potential to drive a misallocation of investment and by the argeo the risk of creating bubbles it's hard not to see the u.s. treasury market as a bubble right now. ..

part of the overall discussion. with respect to savers, it's true that low interest rates reduce the return that savers get on their savings, but i would make the general point that savers just don't necessarily hold treasurery bonds. hey hold corporate debt and a variety of securities, and the return of the securities depend on the strength of the economy. to some extent on risk-taking, part of the policy is to move people away from liquid positions, into riskier positions that involve investment and lehning that promote strengthening the economy. we don't want to go too far, and i we are attentive to that. and we have greatly expanded our able to monitor the financial system and to watch out for

problems and try to address them, and i've been in many conversations with insurance companies, pension funs and so on. we're trying to get the economy back to a more full employment situation. when you're this far away from full employment, it's not obvious that the investments being made are the right investments. they may be insufficient, for example, because there's not enough demand for product. i guess the last comment i would make -- well, you asked me before about deficits and i understand that concern. but i think that the effects of fed policy independent of all oother factors, on treasury rates is moss dead, and rates will rise, and inif vestors lose confidence, there's nothing the fed can do to prevent rates from

rising. so i trust the congress to understand that independent of the fed's policy, which is aimed at helping the economy, it's extremely important to be looking ahead and making appropriate plans for stabilizing the deficit. i'd be happy to talk at some other tome at more length if you would like. >> thank you, mr. chairman. to chairman bernanke, thank you for your insights today. i want to join my colleague inside commend you on the increasing openness and traps spacious at the at the fed, and in that spirit i'm asking for your open innocence and transparency on the economy. you talked about the fact that you see some signs of improvement, especially in manufacturing. those are certainly welcome. put you also cited a number of troubling packets and more than 7% of people have been inunemployment for more signifies mexico and this recover is not like any

previously recovery in the sense the jobs aren't coming back. we're over 5 million jobs down still 48 months after the recession. at this time, after the '81 recession, which was the deepest recession in recent times, we had six million jobs created as compared to five million done and in the so-called job's roamp in 2001, we were up 350,000 jobs. something is going on. i believe participation rate is a key issue. and my understanding is you said earlier the 8.3% is understating unemployment, but if the participation it sim mr. what it was prior to the recession, 66% participation, our up employment -- unemployment number would be over 10 publish%. so we have -- if you agree with

me, i'd love to hear what you think about what we should do in terms of structural changes and on the fiscal side you -- said we're increased possibility of fiscal crisis, and as what happened in southern europe, a sudden spike in interest rates. so my question to you is, on the tax side, the regulatory side, the health care side, the energy side, as you talked about briefly, in the area of healthcare costs, worker retraining, don't we need to sort of a reset of the economy and a more aggressive structural change to our economy? and if so, if you agree with that, along what lines would you suggest? >> well, first of all, i think that there is still substantial cyclical component in what is happening.

our estimate of unemployment of 5.2 to 6% is still quite far below 8.3, of course. so, remains important to try to continue to support the recovery there are a number of forces slowing the recovery, and i talked about housing and financial markets and credit markets in my testimony. all that being said, good policy is good policy anytime. there's lots of things where the u.s. would benefit from structural reforms. i talked about the tax code. you were very interested in budgeting and the tax code issues. that would be very constructive. we have very important needs on education, work-force skills. r & d continues to need support. healthcare is a major, major issue, both because of the federal fiscal situation -- this is the major force driving the

long-run deficit -- or major force -- and also because of the high costs are bad for the efficiency and the living standards of the economy in general. so, throws are all areas that -- those are all areas that when you and i were colleagues in the previous administration, we talk about those issues. worked on trade. which is also an area where i think the progress can still be made. so, all of these structural reforms shouldn't be put on the shelf just because we're still recovering from a deep recession. >> you suggest back in those days you talk about how i was -- we had 4 1/2% unemployment, debt that was 1.2% of gdp. things seemed to be going pretty well. obviously they weren't. there were underlying problems in the economy. the fact is we need more of a sense of urgency, and from your position, and one of credibility

and respect on the monitor side and the fiscal side, that sense of urgency is needed. i believe that we're looking at something different this time, and i think if we don't begin to make these serious changes we're going to be in trouble. you mentioned tax reform. in the last two decades every one of our partners, the developed countries in the world, have reformed their -- you tack about the need change their tax code to encourage working and savings and investment. every one has done it except us. and we continue to fall behind as a result. in my view. and this i think can be played out in other areas, certainly including on the regulatory side and health care as you said, and health care will bankrupt the company unless we do something about it. so thank you for your testimony today and i'll look forward to your continued advice on the structural economy. >> thank you, senator.

>> thank you, mr. chairman. chairman bernanke, i appreciate your hard work. i wanted to ask you in a followup to what senator portman framed, over $15 trillion in debt, rising health care costs, a situation where, if you're relying on entitlements like medicare, trustees have said that will go bankrupt in 2024, and then looking farther out, social security in 2036. when you think about the fiscal state of this country and your responsibility as the charm of the reserve that keeps you up at night? >> well, i've tried to stay away from individual programs and taxes, but i feel it is within my remit to talk to congress about the overall fiscal situation, and i think it's very clear, and i'm sure doug elmendorf made a very clear

presentation, that on current reasonable expectations about policy, that the u.s. federal deficit will become unsustainable within 15-20 years at the most, and possibly some of those effects will be even brought forward by markets. so, we clearly need some major changes in our fiscal planning and our fiscal paths going forward, and these are concerns. i want to emphasize these are concerns which are not just about our children 20 years from now but could have effects much sooner if markets begin to lose confidence in our nation's able to stabilize our debt burden. >> in followup to what senator portman said, do you believe that here in the congress, we need a greater urgency in addressing these issues, these structure issues? >> certainly, you do. in fairness to the hard working people here, i would say that

there's still a lot of -- lack of clarity to some extent among the general public. i think people have conflicting views with what they want and everyone wants a lower deficit but nobody wants to lose their own program or their own tax cut. so it is difficult, i understand, but absolutely i think we would all benefit from action to credibly and strongly articulate a plan that would bring our fiscal situation into sustainability over the next couple of decades. >> and does that need to happen immediately in the next year or two? >> as soon as possible. certainly. >> thank you. i wanted to follow up on questions that senator toomey asked you about some of the risks that we see with our monetary policy right now, and two days ago, charles schwab wrote a piece in the "wall street journal." i don't know if you saw that.

in addition to the issue you're already addressed to senator toomey, which was the issue of the risk of keeping interest rates low with respect to savers -- he also noted that there's also a concern that -- he described it this wement we've seen a destructive run of capital out of europe ask and into safe u.s. assets such as treasury bonds, reflecting a worldwide avoidance of risk and there's insufficient confidence among business people and consumers to spark investment and growth. in short, he says, the fed's actions, rather than helping, are having a perverse effect of destroying the confidence of businessessed and individuals to invest and the willingness of banks to loan to anyone but those whose credit is so strong they don't need the loan. can you respond to that? >> i disagree with that completely. i think, first of all, one of the goals of our asset purchase

program is to take safe treasuries out of circulation and push investors into situations which are appropriately risky, that is making loans, buying corp prosecute debt, and taking actions, hiring and investing to expand the economy. obviously beyond a certain point you don't want to create excessive risk, but going from a situation where people are hunkered down, to a slightly riskier position, is positive for the economy. moreover, when banks and others are making decisions whether to lend or not, they have to ask, what's the alternative? the alternative is low-yielding treasurery securities. so with making only 2% on a ten-year treasury, that's a very low bar for making a ten-year loan to a new business, and that encourages lending rather than discouraging lending. i think our policy is strengthening the economy, and

reduces uncertainty and increased willingness of firms to hire and invest. >> thank you. now know my time is up. i wouldles see the risk as well in terms of the booming interest rates to our debt and having to address that issue right away. >> thank you. >> thank you, mr. chairman. and thank you for calling the hearing, and to talk about monetary policy and fiscal policy, both of which impact our economy, and the economy is the issue on the forefront of the minds of the american people and i want to thank you, mr. chairman, for making time t be with us today to talk about your views on that. i'm sure this has probably beside asked in some form today but i wanted to get at this -- the level of exposure that the u.s. banking system has to your banks. my understanding is that overall exposure has come done. i'm concerned therees significant derivative exposure

that remains, and if the situation of the euro zone would to deteriorate we could see a crisis on par to what we saw in 2008-2009 in this country. i'm wondering if the federal reserve keeps records of total exposure our u.s. banks have to the european banking system? >> well, we do -- we supervise -- we ask banks to provide the information to help us analyze their exposures. they are particularly redirectly to the sovereign debts of the weaker countries, they're much reduced. the banks still are exposed, of course, to the european counterparts but they reduced the exposure and hedged it to some extent. i'd like to point outout we also look at the quality of the hedges. credit to fault swap is no better than the bank or counterpart who wrote it, so we have been looking at that as well. we think banks have made progress in protecting

themselves against problems in european sovereign or bank debt, but i guess i would agree with your final observation, which is that if there's a very substantial crisis or similar problem in europe, that because of so many channels in which that would flow through the financial name, i think our banks would still -- our whole financial system would be significantly affected. >> you do have a way of calculating or quantifying that exposure, and you're confident that the risk is being reduced by banks in this country to a level that i guess you could say is sufficient? >> it's being reduced -- of course, difficult to ask banks to completely eliminate their exposure to a major part of the world economy, which is europe,

but, yes, there has been progress made, both by banks and money market mutual funds in reducing exposures and improving hedging. again, i don't want this to be interpreted as a complacent statement, i think, that if there were a major problem in europe, the risk version, the volatility, the uncertainty, all those things would have a powerful impact on our financial system. >> do you think our -- sort of broadly speaking is the united states in a fiscal position to withstand another economic crisis? >> well, ironically, -- that's an interesting question. ironically, u.s. dollar strength and u.s. interest rates went down during the worst parts of the crisis because the u.s. is viewed as safe haven and where a lot of investors want to go when the rest of the world is

uncertain. so in that respect that actually helps us. on the other hand, if we were to have a significant further downturn in the economy that brought down tax revenues and greatly increased deficits, that would certainly pet stress on an already stressed situation. >> with regard to that, one of the responsibilities of the federal reserve board is to have regular contact with the president's council of economic adviseddersders and other key commercial officials. as chairman, you also meet from time to time with the president. in those discussions in your contact with the president and this advisers, have you underscored the necessity of entitlement reform in order to get the country back on a sustainable fiscal path? >> i've talk -- i think that issue is well recognized, and i certainly talked about it, yes. >> one of the concerns many of us have had is that there hasn't been in the president's budget submissions, at least -- we're

going to get another one next week -- any focus on those issues, and a willingness to confront what we think are very serious fiscal challenges with regard to unsustainable costs driven primarily be medicare, medicaid, social security? i assume you agree entitlement reform can't wait? it's something we need to be focused on, ithink inevitably that's going to be part of broad fiscal reform. it doesn't mean the system has to change tomorrow because people who are already receiving benefits deserve not to be shocked by radical changes in their benefits, and i think most people would agree with that. one can take action now to propose longer term changes. it's interesting that the commission that looked at social security in the early 80s, and proposed a phase-in of the reage. that phase-in is going on today

30 years later. so doing things in advantages makes it politically and economically easier to adjust to. >> my time has expired. thank you, mr. chairman. >> we saved the best for the last, the ranking member, senator sessions. >> thank you, mr. chairman, and for your patience and your sharing with us your views on the me. i would just add that there are dangers out there, in me view. we can't always predict what they are, and i believe we're running a debt right now at a level so high that it could cause problems if we can't foresee right now. charles schwab is not an insignificant figure in american economics, so he is not totally happy with the fed, and i would say if we probably asked you in 2006, did you agree with rabina,

you probably would have disagreed with that. sometimes prognostications come true. i'm worried about our future from that point of view. you've talked about it very directly and in your remarks today the dangers particularly over a period of years with our entitlements. do you have any concerns that the size of our debt already presents a threat to our economy, both as some sort of financial crisis that was predicted in this room could happen in two years if we don't make major changes in our financial path, and as to the possibility that the current debt path we're on is lowering now the level of economic growth

the country has, and could -- so, if you have concerns with regard to this, would you share with us how something might play out and could be playing out that would be damaging to our economy and/or a threat of economic crisis? >> senator, you just pointed out that it's very hard to forecast, and then you ask me to forecast. >> well, basically you have forecasted. you basically said you don't foresee any danger in the next few years. >> i didn't say that. i think -- >> what would you say the dangers are? >> i would say the following, which is that my sense -- just my sense of markets is that they're not reacting to the current level of debt. what they are attentive to is the process. in other words, if you think about the downgrade of s & m to

the u.s. debt last summer, what they cited was what they felt was the ability of congress to actively work together to achieve meaningful reductions in the debt profile. my sense is that a strong demonstration by congress and the administration that they understand these issues and they have a plan for attacking them, i suspect would go a long way to maintaining confidence in the bond market, but that's just my -- >> it's an uncertain world. do you agree with the idea that reinhardt develop in their book base owned empirical data, not personal views, that when a nation's debt reaches 90% of gdt pat could pull down growth from 1 to 2% so if it was 3% growth,

it would come in as 2% or lower? due you think that's a sound theory or you reject that? >> i don't think there's a fixed number but i think i said in my testimony, as debt gets here, it will raise interest rates and crowd out investment and crowd out productivity growth. it's a negative. i don't think that was in the book. that was some separate work they did. at any case, i don't think there's a magic number. but certainly the higher the debt to gdp ratio -- >> whoa what would you consider the debt to gdp ratio. >> today? well, the federal debt held by the public relative to gdp is around 70%. if you add state and local obligations it might be closer to 90%. then you have to ask, how do you deal with unfunded liabilities way out in the future?

>> my social security and medicaid -- >> up funded so that puts you over 100%. so there's different wives looking at it. the main concern i have is not the level but just the fact we're on a path that's going to not be sustainable. where the amount of debt will cause higher interest rates, cause higher deficits and will continue to move into the strat -- stratosphere and that has to be addressed. >> mr. davos was quoted in the financial times, the interviewer said, well, when a state's debt exciteds 90% of gdp they reduce economic point for the country, and then a report said irsuggest the out is comfortably short of that level, about i swiftly

corrected, if you count the federal state debt and add in unfund edits and social security system, the matters you just mentioned, then rogoff thinks america's debt level is well over 120% of gdp. and the paper they wrote was indeed based on the most exhaustive study of financial crisis and nations ever performed, and that's why it's gotten a good bit of interest. so, thank you for sharing with us. i think you're correct to advise us we should move forward on all fronts sooner rather than later. can perhaps disagree about exactly when we ought to start some of the reduced reductions in spending, but personally i would believe that we shouldn't go a day with inefficient wasteful government spending. every bit of that should be

eliminated sooner rather than later and a healthy, leap, -- lean, productive federal government would be good for the economy also. thank you, chairman bernanke, and thank you, mr. chairman, for your courtesy. and i hope i -- i hope the chairman feels better soon. >> beleaguered with an infection today. mr. chairman, i'd like to review a discussion we had in our earlier meeting because i think it's helpful to put the spotlight on the issue and it's the question of health care, which is the most significant part of the discussion on so-called entitlements. i begin with the observation we have very significant medicare

liabilities in the future and very significant medicaid liables fog up. we have private health insurance whose cost are going up at least as fast if not faster. it's hard to judge because they take away benefits to offset costs. you have the veterans administration and the defense budget, both suffering from increasing healthcare costs, and indeed secretary gates said healthcare costs are eating my budget alive, talking about talt the defense beth. when you stack those together we burn 18% of our gross domestic product on healthcare costs. our most -- least efficient inindustrialized competitor is at 12% for health care delivery, and very responsible views about

what the savings are per year are as high as a trillion dollars a year, which is a big deal for the economy, and sitting on this budget economyee, i have the recuring frustration that there is a tendency to overlook the solution to that healthcare problem, which is actually very well underway in the private sector already in places like kaiser and mayo and intermountain and others, which is -- to quote the ranking member -- turn our healthcare system from one that is inefficient and wasteful to something that its healthy, lean, and productive, and because that's a cultural transformation, because it requires turning a few corners, because it requires an element of experimentation and

innovation, it's not something that lends itself to scoring, and scoring is the coin of the realm in these budget discussions. so, what i usualed -- urged you before and what i urge you again today, as you're discussing this problem, please don't overlook that element of a potential solution, which would not only help with medicare and medicaid costs but would help healthcare costs across the board, which are a huge burden on the entire american economy. that's my worry. because you can't score it, because it's reform of a systemic nature, we tend not to talk about it. simpson and bowls came here. critical. we didn't talk about because you can't score it. please don't let the fed be a place in which this message gets lost simply because you can't

score it. chairman. >> well, senator, i actually spoke about healthcare costs as major factor in my testimony today. i a agree with everything you said. we have a system which is very excellent in some dimensions, less than excellent in others, but certainly costs an awful lot, and fining ways to control the costs is absolutely essential north just for the federal budget, although it's critical for the federal budget, but as you say, for the broader economy, and we have had a number of meetings at the fed where we brought to health economists to talk to them about what the approaches are, and there aren't any simple approaches, but i guess one principle worth -- i think which might be set the stage for discussion is one way of looking at our system today is we have a fee for service system and third-party pay.

so it's nobody who is making the economic decision about the effectiveness of care, and that's a essential element of an effective system. there's many ways to address that but that's one of the issues. thank you. i appreciate your coming in today. i know you have a hard stop at noon and your two minutes over so we'll let you go. >> can i have two minutes more? >> absolutely. >> i just would like to -- if weeing can show on the screen, the numbers -- this goes back two administrations, but the numbers indicate that even though unemployment rate looks like it's moving down -- and i think maybe that number on the right has moved up a little bit -- we are still having fewer people working today than in 2001. and that is pretty significant since the population in the working age has increased, and i

think all of us need to ask ourselves, how can we have more growth and productivity and job creation in the country? would you agree? >> couldn't agree more. >> then the other chart this labor participation rate, which is looking at the percentage of people in the working age cohort who are working, and that is a steady downward trend, and all of us need to be thinking about how to do that. i think one factor we talked about is a debt. maybe having a crowding out. but if we can think of ways to increase productivity without increasing our debt, would you not agree that would be important, and if these trends continue, it would indicate that the united states is weakening as a nation economically?

>> well, some of these trends are dem graphically relate, but clearly if we increase opportunity, more people would want to come back out of being out of the labor force and come back into employment. >> the unemployment rate is based on the number of people actually applying, but the number of people who dropped out is significant, and these figures show that. that number right there is based -- considers the demographic and age factors and says within the cohort of people that should be in working age, we have fewer people working and i think it's one reason the middle class is feeling a lot of pain right now. in my own view. >> well, let's do reflect on the fact that there's a long way left to go, we have gone from an economy that was losing over 700,000 jobs a month when the administration took office to one that gained near lay quarter

million in the last report. so there's a lot less to do but things seemed to be getting -- we're adding jobs. >> i like adding jobs. but you have to add more than how many to actually gain on that chart right there? how many are added -- do you know offhasn't the number of peopleheadded to the cohort and if you don't add at least that number of jobs, you're falling behind? >> the number -- normally you need to grow 2 to 2-1/2 percent and some where around 110 thousand jobs a month just to keep stable in terms of the unemployment rate. >> so above that. thank you very much, chairman. we appreciate your testimony. >> thank you.

[inaudible conversations]

>> when i first started the book, i thought, this must be an american story. this is about a country that worships the religion of self-relines and individualism the legacy of thunder row and emerson, but it turns out we're lagarde when it comes to living alone. it's much more common in european nations, especially in scanned -- scandanavia, and even more common in japan. >> looking at the growing trend of american adults choosing to live alone and what that means for the country. also this weekend, on book tv, the second cousin of former secretary of state condoleezza rice, connie rice, on her work to reduce gang violence in l.a. and starting a dialogue between gang leaders and police, and then at 8:00 5 bonnie morris on

her one-woman play of the name, revenge of the woman's studies professor. >> a federal appeals panel today overturned proposition 8. a measure passed by california voters in 2008 that banned same-sex marriage. here's the oral argument in that case from december 2010. it's one hour and 20 minutes. >> good morning again, ladies and gentlemen. we will proceed with the second half of this consolidated proceeding. perivs. hollingsworth. perry and city and county of san francisco versus hollingswoth. good morning again marx cooper. >> and good more than again as well, your honor. the people of california and americans throughout the country are engaged in an ernest and profound debate about the

meaning, purposes, and definition of marriage. the issue is a momentous one for it goes to the nature of an ubiquitous social institution which is in the words of the supreme court fundamental to the existence and survival of the human race. this court is presented with, in our submission, this fundamental question. is whether the definition of marriage -- that momentous issue -- is one for the people. thes to resolve through the democratic process, as they did in enacting proposition 8? or whether our constitution takes that issue essentially out of their hand and decides it for them as the plaintiffs argue here. >> could the people of california reinstitute school segregation by a become vote? >> no. >> why not?

>> well, your honor, that would be inconsistent -- >> what if? >> with the united states constitution. >> as interpreted by the u.s. supreme court. >> yes. yes. yes, your honor, and so the -- >> but they probably could have done nat 1870 or 80 or 90. right? >> very possibly, your honor, yes. very possibly. >> how is this different? >> your honor, this is nothing like the -- for example, the racial restrictions at issue in loving, where there is simply no legitimate rational basis whatsoever on any purpose of marriage that one could possibly conceive, to deny the right of a mixed-race couple to marry, on

every basis on which one can identify a purpose of marriage. a mixed-race couple satisfies those purposes. and so the question is -- >> you suggest that baker would mandate that the state has an absolute right to proscribe the conditions upon which the marriage relationship between its own citizens should be created. correct? >> not an absolute right, your honor. we agree that the right is limited by the -- whatever restrictions the united states constitution may place on it -- >> okay. so, then, loving versus virginia falls right into that restriction? >> directly, yourself, and the supreme court in loving said that the racial restriction violated the central meaning of

the 14th amendment, due process clause and its equal protection clause. >> so, if agree with that, then what die say is the general notion when confronting turner v. safely. >> the case dealing with the right of inmates to marry. >> right. >> your honor, the central, i guess, point that we want to advance here is this. what is the distinguishing characteristics of opposite-sex couples that are relevant to interests that the state has authority to implement -- >> are you arguing to me it is enough for a rational basis for

the federal court to get involved in that right of marriage? >> we are arguing that the test that a plaintiff here is a rational basis test, and if there is any rational basis for the opposite-sex traditional definition of marriage, then that traditional definition of marriage must be upheld, and only if this court concludes that there is nothing to say in favor of that -- of the definition of marriage that has prevailed in this country and in all places essentially at all times since time immemorial. there's nothing to say in defense of it. there's no rational basis for it, then this court would have to strike it down. but that is the test that we

submit to you that applies, yourself. and we believe that there is clearly a rational basis justifying the traditional definition of marriage. the key reason that marriage has existed at all, in any society, and at any time, is that sexual relationships between men and women naturally produce children. society has no particular interest in a play -- platonic relationship between a man and woman no matter hoe class or committed, oemotional relationships between other people as well, but when a relationship between a man and a woman becomes a sexual one, society immediately has a vital interest in that, for two reason. one, society needs the creation of new life for the next generation. but, secondly, society -- it's

vital interests are actually threatened by the possibility that an unintentional and unwanted pregnancy will mean that the child is born out of wedlock and is raised by in all likelihood, its mother alone, and that directly implicates society's vital interests, both in terms of its immediate interests, because society will have to step in and assist that single parent in all likelihood -- that is what usually happens -- in the raising of that child, but as well in the undeniable fact that children raised in that circumstance have poorer -- >> that sounds like a good argument for prohibiting divorce, but i -- [laughter]

>> but how does it relate to having two males or two females marry each other and raise children as they income california and form a family unit where children have a happy, healthy home? i don't understand how that argument says we ought to prohibit that. >> your honor, the point of the question is whether or not the state of california has a rational reason for drawing distinction between same-sex couples who cannot, without the intervention of a third party of the opposite sex, procreate and opposite sex couples who cannot only procreate but can do so unintentionally and create unwanted pregnancies.

that is not a phenomenon that exists with respect to same-sex couples. the over -- >> what is the rational basis for an initiative that, when california law really says that homosexual couples have all the rights of marriage auction the rights of child raring, all the rights that others have, what is the rational basis, then, if in fact the homosexual couples have all of the rights that the heterosexual couples have? we're left with a word. marriage. what is the rational basis for that? >> your honor, you are left with a word but a word that is essentially the institution, and

if you redefine the institution, if you redefine the word, you change the institution. so it is the -- you cannot separate the two. the name of marriage is effectively the institution, and the issue here is whether it well be redefined essentially to be a genderless institution that bears little or very no relationship to the traditional historic purpose of marriage. >> why aren't the merits of this case controlled by rome center after all, before the proposition was passed in california, same-sex couples had the right to marry. the proposition takes it away. isn't that exactly what the proposition in colorado did?

>> your honor, in roemer, the court was dealing with a sweeping law that placed undifferentiated burdens and disqualifications on homosexuals -- >> so if you take away a bunch of rights, that is bad but if you just take away one right, it's okay? >> your honor, it isn't a question of taking them away. the supreme court -- did or did not same-sex couples have the right to marry before the passage of proposition 8? in california? >> your honor, the california supreme court affirmed that they did, yes, and the people of california disagreed with that and the people of california reversed it. >> how is that different from

what happened in colorado? a few local communities decided they wanted to extend preferred status to individuals, homosexuals, gays, lesbians, et cetera, and the voters of colorado passed a proposition saying you cannot do that. your have no right to do that. stop doing that. >> your honor, amendment 2 rendered homosexuals strangers to the law. it eliminate any and all protections for homosexuals with respect to the ordinary pursuits of civic life. it was a weaponing, undifferentiating, essentially rendered them an isolated class and strangers to the law altogether. the the it was an unprecedented in our juris prudence statute. the traditional definition of

marriage has existed throughout the history of this country, it has been the governing understanding and definition of marriage in this state since its founding, and basically throughout the country and throughout the world for all time. the definition of marriage is anything like -- is not anything like the kind of statute that the court was dealing with in roemer, and in fact in this case, i would submit to you that the question is -- your question, your honor, is governed by the crawford case, where the court said that it would refuse to interpret the 14th amendment to require that

people of the state to adhere to a judicial construction of their state constitution when that constitution itself vets final authority in the people. and so what -- >> you told us that the people of california could not reinstitute racial segregation in public oeducation so we know there-some things che they can't do without flying in the face of the 14th amendment. the roemer case opens with a quotation from justice hard harlan's dissent: the constitution neither knows or tolerates classes among citizens. those words now are understood to state a commitment to the law's neutrality where the rights of persons are at stake. aren't you flying in the face of that? >> your honor, if there are no rational reasons to distinguish

between citizens, then the constitution does not permit the law to distinguish between them and treat them differently. >> the proponents proponents oft initiative in colorado made the perfectly logical argument that all they were doing was leveling the playing field and just kennedy said that's not right. that's not correct. >> your honor, it wasn't right. they were doing much more than that. they were essentially opening gays and lesbians to private and public discrimination, and disabling any governmental body from intervening in that private discrimination. as justice kennedy emphasized, in common, order, everyday civic life, from banking, to

hospitals, to hotels, to common carriers, all the ordinary pursuits of civic life, homosexuals were rendered strangers to the law. they could be discriminated against in these fashions. that's a far, far more sweeping and different thing than simply adhering to the definition of marriage that has prevailed in california and everywhere else since time immemorial. and again, the question comes down to this. are there distinguishing characteristics relevant to an interest that the state has authority to implement at work in the opposite-sex definition of marriage? and if there are, then the courts cannot say that acting

upon those distinguishing characterrics is discriminatory. >> let me ask you a question. that's a terrific response. let me ask you a question that is meant entirely to be neutral. is it the preference of the proponents -- let's assume for the moment that we conclude you have standing and you're here to argue, you're properly here and arguing to defend a proposition. >> i accept that, certainly. [laughter] >> do you want us to get to the merits of the issue here? in other words, do you want us to sidestep baker? >> no, not at all. your honor, i believe that baker is binding on this court, and my opening legal point would have been that in fact this is not the first court to take up and

deal with the very 14th 14th amendment issues the plaintiffs bring here today. in fact, there has been eight appellate courts, state and federal, who have addressed these issues, and insofar as they relate to challenges to traditional marriage laws just like proposition 8, and all eight of those courts have upheld the traditional marriage laws and have rejected the 14th amendment claims, and one of those cases, yourself, is baker against nelson. a supreme court case that, we submit, is -- remains a good law, remains binding on this court, and -- >> there are some differences. it was before roemer and it didn't deal with the subject of repealing a constitutional right that existed at the time it was taken away. >> that's a fair point, judge

reinhardt. that is a distinction with respect to the issue as it came to the supreme court in baker. there have not been the earlier period in which the california -- the supreme court had essentially legalized same-sex marriage. so that's a fair point -- >> california court, sir, said, that's what the constitution says. it said as citizens we have to accept that from that moment furford. it's not matter of pulling rabbits out of the hat. they said, this is what the constitution said. >> your honor, fair enough. they said this is what the state constitution says. but under the california system,

it is the people themselves who retain all the sovereign political governmental power, and they are free to review that decision to disagree with it, and reverse it, and that's what they did in proposition 8. and so, your honor, we submit to you that the case came to the people of california the same way the case came to the california supreme court. on review from a decision from the california court of appeals, a lower tribunal, and the california electorate disagreed, respectfully, with their supreme court, and that's -- 43-decision and they reversed it. ...

>> what is it that you are amending and can you amend that? nobody suggests we can't amend the california constitution no matter how the court has interpreted as a general rule. the question is can you mn

something has not suggesting it's a fundamental right for purposes of this discussion. but is a valid reason to mn this constitution wonder the standard that we follow. >> well, your honor, i believe that the point is the people that are free to disagree. >> triet ceramica can you say we are not going to have segregated education we couldn't say yes to that >> that's because the federal constitution what about all that for the california supreme court had to say about it and wouldn't matter of the people did that

before the california supreme court decision or after the california supreme court decision if the california constitution had provided that there would be the racial segregation as you suggest in connection with schools the federal constitution would outlaw all that and it wouldn't federal constitution would outlaw all that and it wouldn't matter whether there had been an intervening supreme court decision from california also out out wallen it. the point is if the proposition had been enacted before the california supreme court ultimately invalidated the traditional marriage if it had been enacted before that, the constitutional case the would

come to you is the same as it is coming to you now with proposition 8 having been enacted to reverse the california supreme court because under crawford the people of california retained the authority to enforce their supreme court unless the federal constitution is violated their about what they did. >> a particular class without sufficient region standards without any reasonable reason, and it's done for a reason that could only be directed at the class in a manner that is invidious but in a biased manner

and we can sometimes derived that view by the action a self then you cannot do it, and here you have to take into account all of the circumstances. you have all the aspects of marriage other than the title when what is the reason for wanting to take that title away from a group of people who have enjoyed it that you give to the constitutional. with our submission to you is is that people of california needed no reason beyond mid the fact that they disagree that the constitution of ordained that result that there constitution

outlawed and invalidated the traditional -- >> is that true of the moral law? >> a bigger part in? >> why isn't that true? the people of colorado decided they wanted to do this and that's what they wanted and what the people of california did but that there is a limit on that and it doesn't have to be in the federal constitution except there has to be a rational basis for it and it can be related to bias. >> yes, your honor, that is true, so if the proposition eight was coming to you without their having been this previous period and which california approved the same-sex marriage, it would come to you and the same constitutional profile that it comes now. i guess our plate is it isn't changed because there's been this previous period where the

california supreme court has interpreted the california constitution to invalidate traditional marriage. >> that's an interesting question in this case. what it really be the same of the state did not go as far as california have gone would they be required to go that far or is it different when you are taking something away? >> i'm not sure that is a settled question, but i would think that the other side, and i know the city of san francisco particularly did say different when you're taking it away again when you are not giving. >> well, your honor, i am not -- i don't deny that there is some force to that proposition, but i

do commend to you the crawford case which we think does they act if the california court of appeals has invalidated a traditional marriage and the california supreme court had reversed that and said no our constitution doesn't always do that, no one would say that during the interim that wright had existed and the california supreme court had stripped the people of california of it and what we are submitting and we believe the case supports is that the people themselves are a tribunal of the constitution standing in those types of shoes. >> could the people of california, suppose proposition 8 in addition to endorsing the subject of marriage had been

done what in part the proposition did which was to disallow the civil unions would you have the same response? would you have the same argument? >> your honor, i believe the argument i am making here would be the same but i recognize the argument for the constitutionality of proposition that accomplished the result or perhaps i should put it the constitutionality of the result would be on different footing than proposition 8 eight self. >> you are a little uncertain that they had added civil unions. but if they had said we don't want hospitals allowing visitation of a dying loved ones by a same-sex partners and they added that to the proposition

would that put it on shaky grounds? >> this proposition by an advancing now, no any time a state goes beyond coming in here i am assuming that this would go beyond what the federal constitution demands coming and it goes beyond what the federal constitution demands, then the people are free according to the specific language of crawford having gone beyond the requirements of the federal constitution, the state is free to return to the standard prevailing generally throughout the united states. >> do winder stand you to be saying of the proposition simply does away with civil unions crawford would say that's okay? >> if it had simply done on the -- proposition 8 had simply been addressed to disallowing civil unions, which as i understand they are allowed under the

california law if that is all the proposition had said, crawford would say that's okay? >> yes, your honor, to the extent that civil unions are not required by the federal constitution giving it >> what does it mean to the extent? does it mean they could take it away or they couldn't take it away? >> they would be able to take it away, your honor, unless the federal constitution itself requires the states to force civil unions to gays and lesbians, and that -- >> they took things away in romer that are required by the federal constitution, so there is more to it to be a disconnect no, your honor. i don't believe that the things that were put in place, in fact i think justice kennedy said this wasn't just a repeal of the

provisions that had been enacted in denver and other municipalities, and is suggested that it as all that it had been it wouldn't have been constitutionally objectionable. it went much further than that, and in going much further than that it became constitutionally of objectionable. >> i didn't mean for you to stop your sentenced if i could have permission in presiding judge here, there's a couple of questions that i am particularly worried about. some states have not tested the partnerships rights to homosexuals do they have a stronger argument for the rational basis than does california and i ask you that stream out because i'm trying to get you to differentiate your argument. it seems to me that your argument can be made as to

rational basis if there were not all kinds of rights already given to those, such as a domestic par-domestic partnersh. so i'm asking you straight out some states haven't done it. do they have a stronger argument then for the rational basis than does california? >> to the contrary i think they do not. i don't think they have as strong an argument. it would be quite perverse if the people of california in enacting and addressing the very legitimate interests and needs of gays and lesbians and their families by enacting domestic partnership laws and going as far as a state could do short of redefining marriage it insisted

in proposition 8 that it not redefine marriage and preserve that institution for the specific purposes that it has always served. i don't believe the state has weakened its constitutional provision when it goes as far as it can to address the interest of gays and their families. >> this is what i really a worried about in your situation is fully adopt your argument is i'm trying to find a rational basis in this particular situation when california has gone as far as it has or is the rational basis we have? >> i'm wondering if it's just not to not just market the marriage of a man and woman.

and a special relationship in society is that enough to meet the rational basis? >> it's to preserve the institution of marriage for the purposes bennett has always served. the unique purposes that flow from the unique interest that the society has that in turn flow from the unique procreated national appropriated capacities of men and women the courts that have upheld the are the traditional definition of marriage noted it is entirely rational for the eighth circuit in the case dealing with a proposition from nebraska that contained identical language to

proposition 8 that it was entirely rational for the people in that state to, fer and reduce the benefits of the institution of marriage for opposite sex couples who can procreate and including procreate unintentionally threw unwanted pregnancies without threaten society's interest and not extend common of ekstrand marriage to same-sex couples who simply don't represent the same societal interest, the interest of society that are vitally implicated by sexual relationships between the opposite sex couples are simply not implicated in the same way.

>> i will skip the last question, thank you. [laughter] do you think the rationale would satisfy the more searching for a rational basis justice o'connor's elaborated? >> your honor, if this case is to be decided by the heightened scrutiny, then obviously it is a harder case. but we think it does satisfy the heightened scrutiny of the essentials proposition, your honor, being that the main objection to the rationale that letter to to read it here is

that infertile couples are nonetheless allowed to marry and that is true. no society is ever insisted that marriage -- the question then becomes how what society draw the line? how would society do that? it would have to have orwellian measures designed to police for to lead to marriage for the measures to presumably unknown marriages gone off childless. we just don't think that the measures on dudley finally the constitutional rights of the individuals involved. there are not any less restricted method could be as a practical matter employed.

i appreciate the court's indulgence. >> thank you. >> i think you indulge me and i hope you didn't go too long. >> you didn't save any time but we will give you two minutes any way. >> may i please the court - theodore olson i am here on behalf of the plaintiff. it's important to focus on the fundamental fact that california has engraved discrimination on the basis of sex and sexual orientation into its fundamental charter to read the label given to proposition 8 in the official voters pamphlet said it all. it eliminates the rights of same-sex couples to marry.

this proposition marginalized and stripped over a million lesbian and gay californians of access to what the supreme court of the united states has repeatedly characterized as the most important relation in life. >> do you think that there is a difference between taking the right away and not supporting it in the first place? >> yes, we do. that is what the united states supreme court said in a case going back to 1964 where the california citizens acted through this process and took away the rights with respect to discrimination in housing and that is what the supreme court said in romer versus colorado. that it does make a difference. i do not think as an original matter that it would be constitutional if congress had enacted proposition 8 five years

ago because to leave the before the marriage cases but i think it makes it worse and that is what the united states supreme court has taken a of the rights in that context enhances the effect of the constitution the purported constitutional change to the >> what is your answer to the case mr. cooper referred to several times as the one about the methods of bringing diversity to the schools. spec the crawford case. with the colcord case did is said to the extent not required by the constitution remedies for the constitutional violation could be restricted by the people in the state of california but that doesn't change anything. i heard mr. cooper mention the proper case five times, not once anywhere in the crawford case

does it suggest that an initiative measure some sometimes rises above the 14th amendment to the constitution of the united states and that's certainly what the case held, and that's certainly -- >> are you suggesting then that day marriage is required by the constitution of the united states? >> what is required by the constitution of the united states is the fundamental right of its citizens to marry. mr. cooper defined that as it has always been between a man and woman. but the united states supreme court has never said that. but the united states supreme court has said in 14 cases involving the right to marriage in the context of abortion, and the context of prisoners, in the context of contraception, and that in the context of divorce the right to marry is an aspect of the right to liberty,

privacy, association and identity. in responding to crawford that there's a constitutional right to a marriage. do we have to reach that point because what you are answering is taking away a constitutional right, and if that's your answer i'd like to note that also. >> we are taking a way for a constitutional right given by the state of california recognized by the state of california that in and of itself makes though proposition unconstitutional under roemer, but i would also say that it is also constitution, and i wouldn't call it, judge reinhardt, a gay marriage or i wouldn't call it single-sex marriage anymore than the supreme court of the united states called it interracial marriage. but the supreme court has said

14 times is that it is a right of liberty, association, privacy. >> you can say whatever you want, but in deciding the case, i think that we are entitled to know whether your answer to crawford is if you can't take away constitutional right and taking away a constitutional right under the 14th amendment. >> yes. >> it's dependent on that? >> pardon me? >> it's dependent on our finding that they will be taken away -- >> know it is not because i went on to say that the right to marriage is the right of an individual. by the way, mr. cooper talks in terms of the right of society, society's interest in the appropriation is not the society's right. the rights under the constitution are not the rights of california. they are not the rights of the voters of california. they are the rights of citizens

of the united states under the bill of rights and the 14th amendment and of california could insist that it's something to do with procreation, the engraved under the right of marriage, it could take that away. it could say we are overpopulated. we don't want procreation coming and we will deny people the right to marry. this is not -- this is a fundamental individual right, and what the supreme court said, and the reason that i am emphasizing this, judge reinhardt, if you look at it from the standpoint of the right of to particular individuals, and maybe what, mr. and mrs. loving in the virginia case of an interracial marriage it was marriage, it was their right to get together, and what the supreme court said in the griswold case we deal with the right of privacy older than the bill of rights. marriage is a coming together for better or for worse. hopefully enduring and to the

degree of being sacred it is an association that promotes a way of life and so forth. this is from the griswold case one of 14 -- >> let me -- i am not trying to express the view on dimare ridge or any marriage of this point. i'm chongging to find out how far we have to go if we are to accept your view of the case. certainly if we start out from the assumption that everybody regardless of sex and regardless of sexual orientation, if we have to reach that issue we would, but as you know, we are advised not to reach a constitutional question unless we have to. not planning on reaching that question to you this early in

the discussion, but it seems to come in relation to how we deal with the crawford case. and it's for that reason that i was asking you whether in order to distinguish crawford you are saying that it's necessary to take the position that the only thing you can't take away is say right under the 14th amendment. as the magazines to me there's two questions. how far do you have to go in the significance of crawford? you do not have to go any further than the case requires you to go. the case is taken away the constitutional right of individuals who are homosexuals because of their classification of homosexuals violates the united states constitution even under the rational basis and i would say if i get a chance to do that this is the clearest case i can imagine a heightened

scrutiny. but in addition to that answer, which i submit is the answer to your question how far do we have to go, but the additional answer with respect to the crawford case is completely separate it seems to me because crawford was saying yes, the citizens can change them on the constitutionally required remedies for constitutional violation. that's different than this. and so for the crawford case in my judgment it has nothing to do with this case, and i would be happy to put the case against the ryckman case and lawrence versus texas. it cannot possibly penetrate the full weight of those decisions. and i guess one additional cancer and i think it's important since i slipped into mentioning the case united states supreme court has determined that sexual conduct between persons of the same sex is constitutionally protected

and the supreme court said else i said marriage is a fundamental right. how can the fundamental right of marriage be taken away by california from persons because they are engaged in a constitutionally protected activity? how can the constitutional right be taken away because the constitutionally protected activity? it cannot exist. if you put the lorenz case together with the marriage cases, loving and so forth, you cannot take away the right which is not a right of same-sex persons. it's a right of all citizens and the right to be with the person they love to have an association that of a select to live a life of privacy to identify themselves as a sell for identification as justice kennedy talked about in a rumor and lawrence that right cannot be taken away from individuals

in this state because of their sexual orientation. it is discrimination on the basis of sex and on the basis of sexual orientation. if under the rational basis the proponents of proposition cannot come up with a reason they tried various different reasons for what the election campaign and this they start off with the proposition that it's a in the balad materials that it was necessary to protect our children from thinking demerits was okay to read about was the zero original rationalization for the statute that was an advertisement and in the particular, it's in the ballot measures submitted to the voters. what is the matter with that? it must be something about